Bovis UK has just lost its third chief executive in four years, its relationship with its Australian parent is difficult and talk of a sale is in the air. Sarah Richardson looks at what is going wrong
When Bovis Lend Lease UK’s staff logged onto their email on the morning of Friday 4 June, they found a corporate announcement that Nick Pollard, the chief executive, was to leave the business. This was greeted by less surprise than might have been expected, given his numbers had been fine, and he’d only been doing the job for 18 months. In fact, there was a strong sense of déjà vu among those staff who’d been there for the past four years: they’d received other such emails. It also created a sense of weary resignation: here comes another restructuring …
Bovis has long been regarded as one of UK contracting’s elite firms: the builder of choice for projects such as the refurbishing of the BBC’s Broadcasting House and the Scottish parliament. But when Pollard goes, probably later this year, it will have lost three chief executives in just over four years. Each switch has been followed by a string of other management changes - for example the embarrassing decision to pay off Rod Holdsworth a week before he was to become finance director in April 2007. And alongside these, long-serving and long-suffering staff have watched as its Australian parent separates out parts of the business, only to bring them back together a few years later.
But it seems the contractor is more troubled than even this managerial merry-go-round suggests. Building can reveal that in an attempt to assert its control over its UK construction subsidiary, Lend Lease has imposed measures on the business that many feel are damaging its competitiveness. On top of that, rivalries between Bovis and other parts of Lend Lease mean that the vision of “one company” is far from becoming reality.
Bovis’ problems broke surface in summer 2006 with the departure of Jason Millett, its UK chief executive. His resignation after 18 months was reportedly the result of a disagreement with Bob Johnston, Bovis’ global chief executive, over the restructuring of the UK business - shortly after Millett’s departure, it was split into construction and PFI units.
But in reality, the contractor had bigger problems than ordering new stationery, as was made clear the following spring. In early 2007, the company, now led by Australian Murray Coleman, was forced to make a £48m writedown. The hit was attributed principally to the Manchester joint hospitals PFI scheme and the Bridgewater Place office development in Leeds. Lend Lease’s global construction business announced a £4.7m loss when it reported its results that March.
At the time, Johnston implied that the buck stopped with Millett. He said the company had taken on “high-risk projects it didn’t understand”. And just in case there was any misunderstanding, he added that the situation had improved under the new management team.
Coleman came with a brief to make Bovis’ operations easier for Lend Lease to understand, and by implication, influence. He said: “One of the reasons I was brought over was to position the business for the future and develop the level of transparency across operations.” Within months, he had got rid of the roles of chief operating officer and the head of regions; from now on, the heads of Bovis’ northern and southern UK businesses would report directly to him. At the time, he warned that profit growth would be suppressed for “up to two years”.
About a year later, however, Coleman put the chief operating officer’s job back on the firm’s table of organisation and recruited Nick Pollard from Skanska to do it. He then became chief executive in waiting - Coleman was widely expected to return to Australia once the business was back on an even keel. In December 2008, this was what happened.
Why did Pollard go?
At first glance, the move seems to suggest a dissatisfaction with Bovis’ strategy during the recession. It has suffered as long standing clients such as Stanhope and Land Securities wound down their operations. But so have many others, and Bovis 2010 is in better shape than Bovis 2007. Much better: when its full-year results come out in August, it is understood that last year’s £17m pre-tax profit will be bettered.
One senior Bovis source says that result reflects Pollard’s planning: “Back in December 2008 we were planning for a three-year recession and we took a stack of overheads out of the business. I think there’s a year to go, and this will be the hardest, but we’re in pretty good shape to tackle it.”
Despite the company’s relative success, there was growing speculation within Bovis that Pollard’s control was being eroded by Lend Lease. One senior source, during a conversation in late 2009, said Pollard was having to run major decisions past Dan Labbad, then the head of Lend Lease’s development arm in the UK. He was viewed as a rising star in the business and had the ear of the Australian board. Several sources attributed this to nervousness about a repeat of the 2007 loss. But although the drive to have more control could be seen as prudent, particularly in a recession, some Bovis staff believe Lend Lease has stifled the business.
1885 A building company in Marylebone founded by Francis Saunders is bought by Charles William Bovis, who renames the business after himself
1974 Bovis is acquired by the Peninsular & Oriental Steam Navigation Company (P&O). By this time, the company is a UK-wide group covering construction, civils, housing and property.
1980s Bovis focuses on housebuilding and construction. Under leadership of Sir Frank Lampl, it expands into US, Europe, Asia and Australia.
1997 Bovis Homes is demerged from P&O
1999 Bovis completes Bluewater for Lend Lease Corporation, and six months later the developer buys it from P&O for £285m. The Australian operations of Lend Lease Projects are merged with Bovis to form Bovis Lend Lease.
Several managers point to the requirement to fill out an approval document running to more than 130 pages when bidding for work, which must be signed off by Lend Lease. One said: “It’s beyond a joke. It takes them six weeks to process it, and most of our competitors are bidding on a four-week turnaround. We can’t respond fast enough.”
Lend Lease is also understood to have agreed with Bovis’ management that, in most cases, the contractor must not bid on margins of less than 5%, even though the average for contractors is between 2% and 3% (and many will take work for much less). The same manager said he had been aware of instances when this policy froze Bovis out of projects being tendered by Lend Lease.
Perhaps the most obvious example of Lend Lease’s heavy hand is the wrangle over nuclear policy. A big part of Pollard’s task when he took over as chief executive was to reposition the business in new markets to help it cope with the failure of its traditional feeding grounds. The markets he identified were rail, waste-to-energy and nuclear. After two years of repositioning, earlier this year Bovis looked as though it was finally going to make a breakthrough into nuclear with a consultancy deal for EDF energy - until Lend Lease vetoed its involvement in nuclear work. According to one source, Lend Lease’s diktat was pronounced “virtually as pen was to be put to paper” on the EDF deal.
It is currently unclear whether Lend Lease’s stance will result in redundancies at Bovis, but it is widely recognised that the nuclear sector is one of the few predicted growth areas in UK construction in the foreseeable future. And now, as a result of Lend Lease’s intervention, it is one from which Bovis is excluded.
The nuclear fiasco illustrates another trend: despite Lend Lease’s attempts to direct its UK construction business, there is in fact a lack of rapport between them. Despite the fact that Pollard’s business strategy was signed off two years ago and widely publicised, Lend Lease apparently did not inform Bovis until the eleventh-hour about its ethical position on nuclear power.
A lack of integration is also apparent between the developer’s other operations in the UK, where, according to several Lend Lease staff, relationships are often poor. Some examples may seem petty: for example, when Catalyst, Lend Lease’s PFI arm, was awarded the £2.4bn Birmingham Building Schools for the Future (BSF) project in February 2009, it is understood that there was an internal wrangle between Catalyst and Bovis, the contractor for the scheme, over which would send out the press release. Others may be more damaging: one Bovis director said he would rather not work with Vita Lend Lease, the company’s facilities management arm, because “frankly, I can get better terms elsewhere for less hassle”. Certainly, Vita is not used on as many of Lend Lease’s developments as you would expect from an integrated offering.
There also seems to be a confusion of responsibility between Bovis UK’s southern and northern businesses. The running of the £2.4bn Birmingham BSF has just been transferred from the north to south: depending on who you talk to, the reasons vary - but it has left the north with an unexpected hole in its order book.
A problem without a solution?
Perhaps even more worrying than the impact of such disunity is the failure of Lend Lease’s efforts to sort it out. The announcement in April that all of Lend Lease’s UK and European businesses would be united under Labbad - a pattern Lend Lease is replicating across the globe - is a recognition that the company’s strategy still isn’t working as it should. Announcing the appointments, Steve McCann, the global chief executive, said: “It will enable a more focused and co-ordinated approach to our growth strategy and the execution of major projects. This will enable us to achieve the best outcomes for us and our customers, investors and partners.”
It is understood that the move was the outcome of a series of meetings held since the start of the year, aimed at integrating the firm’s offering. “It is something they should have done when they bought Bovis,” said one source in the contractor’s supply chain.
The choice of Labbad as chief executive is understandable - despite his background as an engineer, the 38 year old comes from the development side of Lend Lease’s business. Of course his appointment meant that Pollard was surplus to requirements - even before the nuclear issue arose.
But the move, after so many years of unrest, also has the air of a final throw of he dice, and has led some to question whether Bovis has a long-term future with Lend Lease. Labbad’s appointment has fuelled such rumours. One source close to the company said: “At the end of the day, Lend Lease is a property developer and it has brought in a property development man to run the construction business. If you look at it like that, it doesn’t look like construction is a priority.” The fact that Pollard is to remain with the business for up to nine months has also led to speculation that Lend Lease is leaving the door open for buyout.
For the company to demonstrate its value to Lend Lease, Bovis will need to adapt quickly to the new UK market, from which public sector spending is being subtracted. With nuclear ruled out, and the private sector still shaky, there are already question marks over the sustainability of its order books. One director says: “Obviously we’d love them to be bigger, but I think everyone’s like that. Until we come through recession there aren’t going to be any great growth areas in the sectors we’re in.”
Once markets do start coming back, much of Bovis’ success will depend on how quickly the new management system can bed down. The first test will be the recruitment of Pollard’s replacement, which is expected to be at managing director level. An obvious candidate is Julian Daniel, head of UK south, although it is thought that Lend Lease will also cast an eye outside the business.
But one thing is certain: if Bovis is not to be left behind, the organisation cannot afford to wait for a new arrival before it starts sorting out its problems.